Private investment are being reduced globally, as higher and longer interest rates and uncertainty about global economic growth have weakened investors’ appetite for risk,
And Southeast Asia, considered a promising digital economy hotspot just a few years ago, is no exception. A new report from Bain and Company shows that the number of private equity deals in the region is declining despite positive growth prospects, and the region may be benefiting from a rebound in global business trends.
The value of deals in Southeast Asia fell 39% to $9 billion in 2023, compared with the average for the period 2018 to 2022. The total number of deals also declined, falling to 109, down 24% from the previous average. The value of transactions in the region has returned to 2020 levels.
However, Southeast Asia’s performance is roughly comparable to other Asia-Pacific markets. Transaction values in Greater China and India fell by 58% and 41% respectively over the same period.
One market that has done well? Japan, where transaction values rose 183% above average between 2018 and 2022.
Singapore and Indonesia accounted for the bulk of deals in Southeast Asia, both in value and quantity. “Singapore has usually been number one,” said Usman Akhtar, senior partner and head of Bain’s private equity practice in Southeast Asia. “Singapore is a geographic region that attracts many companies with regional ambitions. That doesn’t necessarily mean it all goes into economic activity in Singapore, but that’s where the companies are based.”
Indonesia typically ranks second in attracting direct investment, Bain said. The country is the region’s largest economy and boasts a fast-growing middle class.
Southeast Asia on average reported private equity-backed investment of $10 billion to $11 billion between 2018 and 2020, rising to $27 billion in 2021 due to the COVID pandemic. fueled investment boom in the Internet sector.
The Internet and technology sector continues to receive the most direct investment, accounting for more than half of all deals since 2018. However, healthcare is quickly becoming an attractive target for investors, according to a Bain report. The firm also predicts that rising incomes in the region will make the consumer goods sector a hot spot for investment.
If 2023 was a tough year, 2024 is unlikely to be much easier. A Bain survey found that investors expect less favorable returns over the next three to five years and are concerned about difficult exit conditions for their investments.
Dealmaking in Southeast Asia has been slow this year. In the first quarter of 2024, Southeast Asia saw $1.4 billion in private equity deals alone, or $5.6 billion annualized, down from $9 billion in deals last year.